China’s largest chipmaker SMIC is ramping up production of a decades-old chip technology vital to the supply chains of many industries, ringing alarm bells in the United States and prompting some lawmakers to try to stop it.
The United States and allied nations could further tighten restrictions if China announces a $144 billion support package for its chip industry, Reuters exclusively reported Tuesday, said TechInsights chip economist Dan Hutcheson.
Beginning with the Trump administration, the United States has tightened the noose around China’s high-tech ambitions. It cut off the world’s largest telecoms company Huawei Technologies from the US market and technologies through a series of rules earlier this year and cut off the airflow to China’s advanced chip manufacturing.
But why worry about older chip technology?
China, which held 9 percent of the global chip market in 2020, has a track record of dominating key technologies, flooding the market with cheaper products and wiping out global competition, China watchers say.
They’ve done it with solar panels and 5G telecom equipment and could do it with older technology chips, said Matt Pottinger, a former deputy US national security adviser during the Trump administration who studied chip policy at the Hoover Institution.
“There would be Beijing’s coercive influence on every country and industry — military or civilian — that depends on 28-nanometer chips, and that’s a big, big part of the chip universe,” he said.
“28 nanometers” refers to a chip technology that has been in commercial use since 2011. It’s still commonly used in the automotive industry, guns, and in the explosive category of Internet-of-Things gadgets, Hutcheson said.
Hutcheson, who has overseen chip production capacity for four decades, said the concern is that Semiconductor Manufacturing International and other chipmakers in China could use government subsidies to sell chips at a low price. And a possible new round of financing from Beijing would increase chip production even further.
“The Chinese could just flood the market with these technologies,” he said. “Regular companies can’t compete because they can’t make money at those levels.”
US lawmakers push against SMIC
These concerns have prompted some lawmakers to use defense budget withholding laws SMIC.
Though the measure is weaker than initially proposed, US senators are expected to pass the annual National Defense Authorization Act 2023 this week, which includes a section preventing the US government from using chips from SMIC and two other Chinese memory chipmakers . It is not clear what impact the restriction, which will come into effect five years after it came into effect, will have on SMIC.
Founded in 2000 with support from Beijing, SMIC has long struggled to join the ranks of the world’s leading chipmakers.
But it’s a behemoth of older technology, including chips that regulate the flow of electricity in electronics. And its revenue for the third quarter of this year was nearly $2 billion, about double the same period last year due to global chip shortages.
SMIC fill supply gasp
As US export controls make manufacturing advanced chips impossible, SMIC is doubling its mature technology chip count and has announced four new plants or factories since 2020. When these come online, it would more than triple the company’s production, estimates Gartner chip analyst Samuel Wang. He said there is a huge surge in new chip fabs across China.
“All of these will have an impact from early 2024 and will be fully exhausted by 2027,” Wang said, adding that increasing chip supply will put pressure on chip prices.
The importance of legacy chip technology hit the industry in the face in 2021 as shortages of these chips prevented millions of cars and consumer electronics from being manufactured.
Mark Li, chip analyst at Bernstein Research in Asia, said the company is becoming a formidable competitor to Taiwan-based UMC Microelectronics and US-headquartered GlobalFoundries.
“SMIC has been much more willing to add capacity than other lower-end factories, and especially with this shortage we’ve seen over the last two years,” he says. “It’s not a problem now… but who knows, maybe in a couple of years there’ll be another shortage and capacity will be a big issue.”
© Thomson Reuters 2022
